In a word, we lent to ourselves.
Put out at a time when money was scarce, the loan would have been
unpatriotic and uneconomic. But our banks were filled with idle cash:
everywhere capital sought safe and profitable employment. Now you begin
to see why these allied loans are really good business in more ways than
one.
What is our financial stake in the cost of the war: what does it yield:
how is it safeguarded?
Clearly to understand this whole situation you must know just how these
foreign bonds are put out. There are two kinds. One is the internal loan
issued in the money of the country whose name it bears. This means that
if it is a French bond it is in terms of francs: if English it calls for
payment in pounds sterling: if Russian, in roubles: if German, in
marks. An external loan, on the other hand, is issued in the money of
the country in which it is floated. The Anglo-French loan is an example
of this kind because both principal and interest are to be paid in
United States gold coin. These internal and external loans may be direct
obligations of the issuing governments or may be secured by collateral.
There is still a third medium for the employment of American money in
the war. Technically it is known as bank credit. Through this agency,
foreign firms make deposits of money or collateral in the national banks
of their respective countries and purchase goods in America through
credits thus established for them in a group of New York banks or trust
companies.
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